Issue No. 851

After Winter Must Come Spring

Airlines Signal End of Pandemic Crisis Is Near With Aircraft Orders

Pushing Back: Inside The Issue

"We are now past the inflection point," Air Lease Corp. Executive Chairman Steven Udvar-Hazy said last week. By the lessor's reckoning, CEO John Plueger noted, the inflection point occurred some time in the second half of last year, even as the world was grappling with the surges of the Delta and Omicron coronavirus variants. ALC isn't alone. Both Airbus and Boeing have notched significant orders in the last few months, as airlines rush to replace older, less fuel-efficient aircraft with newer jets. Air Canada, Air France-KLM, and Norwegian Air are just the latest airlines to think 2022 could be the "hot vaxxed summer" that last summer was meant to be.

The aviation industry has had a poor track record of forecasting inflection points during this pandemic, but signs suggest this time they may be on to something. It's not just the aircraft orders. Airlines are rushing to add new routes seemingly everywhere as they see demand start to heat up for spring and summer travel. The booking curve is lengthening out. Business travel remains depressed, but even there, conferences and trade shows are returning, and offices are reopening. Vaccination rates continue to climb. Economic output and hiring are rising in much of the world.

But, as Plueger and Udvar-Hazy said last week, the road to recovery will not be linear, and the industry that emerges could be very different from that of March 2020. Long-haul international travel remains depressed, especially to and within Asia. Atlas CEO John Dietrich isn't convinced passenger demand to China will recover any time soon. But Air Canada Chief Commercial Officer Lucie Guillemette brushed off that concern by saying: "We have found other opportunities." It is now apparent that cargo will continue to be a major part of the airline business and not just a pandemic stopgap. Business travel may be forever changed, as we explore in the podcast. Not gone, just different.

So are they right? After two years of winter, is it finally spring? And what will the industry look like as it emerges? Stay tuned.

The Airline Weekly Lounge Podcast

This week in the 'Lounge, Accenture’s Emily Weiss, global travel lead, and Scott Davidson, managing director-travel industry, talk to host Madhu Unnikrishnan about how different business travel may look when it returns. If the pandemic has taught the travel industry anything it’s the “art of the possible,” Weiss noted. Will digital nomads offset the slow return of business travel for airlines? And just how promising are eVTOLs in solving the urban mobility conundrum? Listen to this week’s episode to find out. Go here for the podcast's archive.

Weekly Skies

Air France-KLM is not champing at the bit to buy a stake in Italy’s ITA Airways. After two failed attempts to invest in predecessor Alitalia, Air France-KLM CEO Ben Smith said the group’s inability to make a bid for the Italian carrier is not “something that we lose sleep over.”

The Paris-based airline group is barred from taking more than a 10 percent stake in another airline until three-quarters of the €4 billion ($4.5 billion) in aid it received from the French government has been repaid. This effectively blocks it from participating in the bidding for ITA, which has already received a preliminary offer for a majority stake from a consortium made up of the Lufthansa Group and shipping giant MSC. Air France-KLM partner Delta Air Lines, which also has expressed interest in ITA, has not yet made any public offer. The Italian government officially launched the sale on February 11.

“We’ve had two attempts taking an equity position in Alitalia, which shut its doors in October. Both have not been successful, so to do it a third time, when and if we have the flexibility to do so, will be under much more risk-comfortable zone,” said Smith during Air France-KLM’s fourth-quarter results call. The group first bid for a stake in Alitalia in 2008, and then seriously considered a second bid in 2018.

Air France-KLM’s main interest is acquiring more slots at Milan’s close-in Linate Airport. However, Smith noted that it has already received some at “no cost,” and expects more to become available “through either remedies or through the reduction in activity” by ITA.

Air France and KLM will operate up to eight daily departures from Linate by June, according to Cirium schedules. They had just three departures during the same period in 2019.

While a bid for other airlines may be off the table for now, the group is watching market conditions closely to raise up to €4.5 billion through a combination of new debt and equity, said Air France-KLM Chief Financial Officer Steven Zaat.

“It is our intention to pay the states back as soon as possible,” he said. “We know that it is a strategic constraint on our company … We have all the scenarios ready to get quick in repaying the state aids to the states.”

Air France-KLM is bullish for the travel recovery this year. The group plans to fly more capacity across the North Atlantic this summer than it did in 2019 in a bet on the strength of pent-up demand.

“We’re quite confident and optimistic that, if the rules that we’re currently sitting [with] today where there’s very few restrictions for Europeans to enter the United States and vice versa, that we should see the benefits of pent-up demand,” said Smith. Other pluses he cited include fleet changes at American Airlines and British Airways that limit their recoveries in the market; the closure of Norwegian Air’s long-haul operation; and he expressed skepticism over the pending launch of Norse Atlantic Airways, which plans to connect Norway with the U.S.

United Airlines also plans a bumper summer on the transatlantic. Despite scaling back its 2022 capacity plans due to the Omicron variant surge, the carrier still plans to fly as much — if not more — capacity between the U.S. and Europe this summer. CEO Scott Kirby has cited similar structural changes for United’s optimism as those mentioned by Smith.

Major European competitors, International Airlines Group (IAG) and the Lufthansa Group, have not yet released their results for last year or provided their outlooks for 2022.

One big question mark for Air France-KLM — and really every airline — is what happens in Ukraine. A Russian invasion would place “tremendous” upward pressure on fuel prices, said Zaat. And a deescalation in tensions would likely push fuel prices down, he added.

In the fourth quarter, Air France-KLM lost €127 million. Revenues, while more than double a year ago, were down 27 percent compared to 2019 to €4.8 billion. Zaat, citing the group’s earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of €827 million, said that financial performance exceeded 2019 levels for the first time since the crisis began. Air France, KLM, and Transavia flew 72 percent of their 2019 capacity during the period, though passenger traffic stood at 60 percent of two years prior.

Air France-KLM lost €3.3 billion in 2022. Revenues recovered to €14.3 billion, or 53 percent of 2019 levels. Cargo was a bright spot for the group with revenues up 67 percent year-over-two-years to €3.6 billion.

The group forecasts breakeven EBITDA on 73-78 percent of 2019 capacity in the first quarter, said Zaat. He declined to provide full-year guidance citing the uncertain international travel environment.

Edward Russell

Air Canada Sees Promise in Sixth-Freedom Hubs This Summer

Air Canada is betting on the strength of its connecting hubs to funnel what it expects will be strong transatlantic leisure demand this summer between North America and Europe. The carrier reported advance bookings for summer travel are strong, and that transatlantic capacity this summer will be only 30 percent lower than in 2019.

Capacity in the first quarter of this year is up 243 percent from last year and only 44 percent below 2019 levels, despite the Omicron surge dampening first-quarter demand, Chief Commercial Officer Lucie Guillemette said. Transborder, including sixth-freedom flights, and Latin America demand remains robust, particularly seasonal flights to sun destinations. Asia-Pacific routes, especially to China, are down sharply compared with pre-pandemic levels, with no clarity on when the recovery may occur, Guillemette said. But last year, Air Canada added flights to India from Toronto and Montreal to serve the visiting friends and relatives (VFR) markets in Eastern Canada, and these are performing above expectations. “We have found other opportunities,” she said.

Corporate travel continues to lag, but Guillemette is encouraged by the willingness of small- and medium-sized businesses to travel, and is confident that Air Canada’s large accounts will return to travel once more workers are recalled to their offices.

Air Canada is sure enough that recovery is around the corner that it recalled 3,900 furloughed employees in the fourth quarter, and a total of 10,000 last year. The carrier plans to resume hiring new employees this year. The cost of wages and salaries rose 31 percent in the fourth quarter over 2020 as a result.

The carrier has become increasingly reliant on cargo. Air Canada operated 10,000 cargo-only flights last year, compared with 4,000 in 2020. But in a sign that the carrier believes passenger demand will return, Air Canada is converting its Boeing 777 and Airbus A330 preighters back to passenger aircraft this year. However, Air Canada is returning to dedicated freighters. It took delivery of its first 767F last year, and three more will join the fleet this year. Cargo generated C$490 million ($384 million) in the quarter, or 150 percent more than in 2019, and C$1.5 billion in the year, a record. The sector has the added benefit of offsetting seasonality in the passenger market. “This validates our decision to return to dedicated freighter aircraft,” Guillemette said.

But freighters are not the only aircraft the carrier is adding. Orders announced last year ultimately will bring Air Canada’s fleet of Airbus A220s to 45 by 2025, and its fleet of Boeing 737-8s to 40. It expects to take delivery of one 787 this year and two more next year. The carrier believes Boeing’s delivery issues will be sorted out in time for it to take its 787s. Transport Canada, the country’s regulator, will not subject the 787s to further inspections. The FAA last week said it will take over the job of issuing certificates for they type (see Fleet section for more).

The carrier exited the Canadian government’s relief program, except for a fund that will support refunding passengers for nonrefundable tickets. This fund is expected to be in effect for seven years, the carrier said.

CEO Michael Rousseau called on the Canadian government to lift its remaining quarantining and pre-departure testing requirements for inbound travelers, noting that many other countries have done so. “It is time for Canada to do the same,” he said. “There is no reason to single out travel.”

Air Canada reported a fourth-quarter loss of C$503 million on revenues of C$2.7 billion, which were 30 percent higher than last year. For the full-year, Air Canada’s loss was C$3 billion in C$6 billion in revenue.

Madhu Unnikrishnan

In Other News

  • Aeromexico reported an earnings before interest, taxes, depreciation, amortization, and restructuring (EBITDAR) profit of 5 billion Mexican pesos ($246 million) profit in the fourth quarter. However, that profit turned to a loss after one-time restructuring expenses of 10.6 billion Mexican pesos. Revenues were 15.4 billion Mexican pesos, which was up quarter-over-quarter but down 10.8 percent compared to 2019. Unit revenues were up 10.3 percent year-over-two-years and unit costs excluding fuel and restructuring expenses were down 7.6 percent.
  • Finnair rode the booming air cargo wave in 2021, which CEO Topi Manner described as the “crown” of its fourth-quarter and full-year results last week. Freight revenues, at €335 million, made up 40 percent of the carrier’s €838 million in total revenues during the year. But that was not enough to push Finnair into the black. The airline lost €464 million during the year despite achieving €200 million in permanent cost savings by the end of December, said Manner. The Omicron variant hit Finnair towards the end of the fourth quarter and will continue to pressure its first half results — in part because some of the Asian economies it bet would begin reopening have delayed doing so — said Manner. He expects Japan and South Korea to begin reopening towards the end of the second quarter, though China and Hong Kong are expected to remain closed for the time being. In the meantime, the airline’s pivot towards more U.S. flying, and a new long-haul base at Stockholm’s Arlanda airport are meeting expectations.
  • Norwegian Air‘s restructuring continues to pay off with a fourth quarter profit of 112 million Norwegian kroner ($12.5 million). CEO Geir Karlsen said he was “happy” with the result, which included a 281 percent year-over-year jump in revenues to 2.5 billion Norwegian kroner. The airline also increased its available liquidity to 7.7 billion Norwegian kroner through the sale of some of its unused London Gatwick slots. But despite the profit, Karlsen said Omicron hit demand during the period prompting Norwegian to reduce capacity, and he described the first quarter as “challenging.” The carrier will fly just 60-65 percent of its available capacity during the three months ending in March.

    The carrier is already focused on its summer schedule, which includes the addition of 19 more Boeing 737s — including two 737-8s — for a total of 70 aircraft. Karlsen said yields for July are already tracking to be on par with those in 2019. And Norwegian Air is already on the hunt for roughly 15 aircraft — all of which will be “brand-new aircraft” said Karlsen, though he did not say whether they would be 737 Maxes or Airbus A320neo family jets — to add in 2023. He added that the carrier’s target fleet is 95-100 aircraft, at which point it can “really scale [the] cost side of the business.”

    In 2021, Norwegian Air made a 1.9 billion Norwegian kroner profit on revenues of 5.1 billion Norwegian kroner. Revenues were down 44 percent year-over-year
  • Norwegian startup Flyr lost 187 million Norwegian kroner ($21 million) in the fourth quarter. Revenues grew 117 percent quarter-over-quarter — Flyr only launched in June — to 86 million Norwegian kroner. CEO Tonje Wikstrøm Frislid said the airline was “progressing according to plan,” and added that bookings are improving for the summer after they took an Omicron hit in the fourth and first quarters. Flyr had five Boeing 737s at the end of December, and plans to grow to 12 aircraft by the end of August including six 737-8s due this year that it will lease from Air Lease Corp. The airline plans to fly between 12 and 18 aircraft by the end of 2022.
  • Tata Sons, the Indian conglomerate the bought (or regained) Air India from the government last year, has named Ilker Ayci as CEO of the former state-owned carrier. Ayci stepped down as chairman of Turkish Airlines on January 27. Tata CEO Natarajan Chandrasekeran said Ayci’s appointment will lead the carrier into a “new era,” and he is expected to start in his new role on April 1.
  • Avelo has a new chief financial officer, and it’s a familiar name to people who follow the U.S. airline industry. Hunter Keay, a long-serving analyst for investment firm Wolfe Research, takes the financial helm of the startup carrier this week. Keay previously worked for Stifel Nicolaus and Legg Mason. Avelo CEO Andrew Levy called Keay’s hire a “ringing endorsement” of Avelo’s business model.
  • FAA Administrator Steve Dickson will step down next month, just halfway through his five-year term. Dickson, appointed by President Donald Trump in 2019, said he told President Joseph Biden he wants to spend more time with his family. Dickson presided over a tumultuous period in the FAA, with the Boeing 737 Max grounding and resulting scandal, the 5G wireless network kerfuffle, and the ongoing 787 certification issue, most of that against the backdrop of a global pandemic. The Biden administration has not hinted at who might replace Dickson, but getting a nominee for a five-year term through an evenly divided Senate in an election year will be an uphill climb no matter whom Biden names.

Edward Russell & Madhu Unnikrishnan

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Fleet

Airbus brushed off concerns about its supply chain and said it expects to deliver more than 700 aircraft this year, up from 611 this year. The airframer added that it will decide by the middle of this year on how much further it can increase production, particularly of its fast-selling A320-family of narrowbodies.

By the end of last year, many of the supply-chain issues that had troubled Airbus in 2020 and early 2021 were behind it, CEO Guillaume Faury told investors last week. Suppliers were snapping back from being idled early in the pandemic and were standing up their workforces. But still, the airframer acknowledged that some issues are intractable. The labor market is tight, logistics remain snarled, and the price of raw materials is rising.

Faury acknowledged that the bottlenecks affected 2021 production but was optimistic that the airframer can handle its targets this year. “We are ready,” he said.

Airbus is planning to deliver 720 aircraft in 2022, up about 20 percent from last year. “We think we can do it, which is why we guided,” Faury said, adding that more than 720 would be “difficult.”

To achieve that goal, the airframer is raising production rates across the board. The A220 will go up to 14 aircraft per month by the middle of the decade. The A330 ramps up to three aircraft per month by the end of this year. And the A350 will build to six aircraft per month by early next year.

By far, however, the biggest and most challenging ramp will be for the A320 family, which will go to 65 aircraft per month by the middle of next year. To help achieve this, the company is making all its production sites capable of assembling the A320.

At the end of the year, Airbus’s backlog stood at more than 7,000 aircraft, which last year the airframer said could take more than 10 years to clear at current production rates.

Much of that backlog, of course, is for the A320neo-family. Faury noted that demand for next-generation narrowbody jets is soaring and is likely to stay high as the world recovers from the pandemic. The airframer believes regional and domestic travel will continue to rebound, but Faury was less bullish on the near-term prospects of long-haul travel. “The pandemic is not yet fully behind us,” he said.

The airline industry is “gradually emerging,” however, although Faury said the surges caused by the Delta and Omicron virus variants illustrated that the recovery is volatile and “won’t be linear.”

How the airline industry recovers longer term is key to Airbus’s mid-year decision on production rates for 2025 and beyond. Demand is “still quite strong and could go quite high,” he said. In which case, the airframer must balance demand with the capabilities of its supply chain. But the airframer is focused on whether that near- and medium-term is sustainable, Faury said. “Otherwise, it would be meaningless for us [to increase production rates].”

Another sign of the recovery is that Airbus last year was able to re-market about 100 aircraft that had been cancelled by airlines earlier in the pandemic.

Airbus reported revenues of €52.1 billion ($59.2 billion), up from €49.9 billion in 2020, generating adjusted earnings before interest and taxes of €3.6 billion, compared with €618 million in 2020. Adjustments included €1.1 billion in Covid-related costs. The airframer delivered 611 aircraft in 2021, including the last A380 to Emirates. Gross orders were for 771 aircraft, and including cancellations net orders were for 507 aircraft, compared with 268 net orders in 2020.

Madhu Unnikrishnan

ALC Reports Record Revenues on Strength of Narrowbody Demand

Air Lease Corp. no longer hopes for an inflection point for the global airline industry’s recovery. Instead, the lessor thinks that point has passed and the industry is well down the road back to health.

The recovery began in earnest in the second half of 2021, and although the recovery will not be linear, the industry is on the right trajectory, Executive Chairman Steven Udvar-Hazy said last week.

As ALC has said before, the world’s airlines are clamoring for single-aisle aircraft, driven now by climbing fuel prices. The lessor has ordered 50 Boeing 737-8s and -9s for delivery between 2024-2026. “The passenger stigma has largely dissipated,” Udvar-Hazy noted. Most of these aircraft already have been placed. ALC also finalized its 116-aircraft order with Airbus, the lessor’s largest-ever single order. These include 25 A220s, 59 A321neos, 20 A321XLRs, five A330-900s, and seven A350Fs — the last being ALC’s first order for dedicated freighters.

Although ALC expressed confidence that the airframers can produce enough single-aisles to satisfy demand, CEO John Plueger noted that Airbus is basically sold out of delivery slots for its A320 family and Boeing soon will be for the 737 Max. “Demand for new single-aisle aircraft from our order book is accelerating with diminishing supply and future availability from both Airbus and Boeing,” he said. “We are, of course, watchful of OEM supply chain stress and any other production constraints that may impact our forward deliveries over the next several years.”

ALC is no stranger to delivery delays. Airbus has delayed delivery of A321s, and Boeing continues to struggle with the 787 (see below). ALC had planned to take delivery of 10 787s this year, but now expects only one. The lessor has converted three 787 positions to 737 Maxes, Plueger said.

The lessor is not giving up on widebodies. Demand will return, especially given that the world’s airlines have retired about 300 widebodies since the pandemic began, Udvar-Hazy said. ALC is focusing on what it calls “narrow” widebodies — A330-900s, A350s, and 787s. Airlines will continue retiring older widebodies or converting them to freighters.

Although ALC is encouraged by the recovery of domestic and regional passenger demand, international long-haul demand remains an area of concern, particularly in Asia. The reopening of Australia, India, New Zealand, and Vietnam are hopeful signs. But China remains shut, and this is a concern. “We are mindful that full recovery of the global airline industry will not happen until we see accelerated international travel recovery,” Plueger said.

Last year, ALC was the launch customer for the A350F. Udvar-Hazy said ALC had long considered jumping into the freighter market, but was convinced by the explosive growth in the sector during the pandemic. The lessor believes e-commerce will continue to grow and will drive demand for even more freighters. ALC plans to convert several of its A330s to freighters between 2023-2027, he said.

“E-commerce provides a stabilizing factor that was missing in the more volatile air freight marketplace in prior decades, and continued bottlenecks at container shipping ports globally also has vitalized air cargo demand, and we do not really see the situation abating,” Udvar-Hazy said. “So we felt it was time to make a move into this marketplace by sticking to our philosophy of ordering the most technologically advanced and the most fuel efficient aircraft with the new A350 freighter.”

ALC took delivery of 53 aircraft last year and has placed more than 99 percent of its portfolio. The lessor reported $597 in fourth-quarter revenues, 22 percent higher than 2020, and $2.1 billion for the full year, record-setting revenue for ALC both in the quarter and the year.

“As the Delta and Omicron variants have shown us, we cannot control each phase of this recovery, but we are moving in the right direction,” Udvar-Hazy said.

Madhu Unnikrishnan

FAA Tells Boeing it Will Do Final 787 Certifications

The FAA told Boeing that it, and not the airframer’s inspectors, would issue airworthiness certificates for 787s, a reversal of the longstanding industry practice.

“The FAA informed Boeing that the agency will retain the authority to issue airworthiness certificates for all Boeing 787 Dreamliner aircraft,” the FAA said last week. “This will allow the agency to confirm the effectiveness of measures Boeing has undertaken to improve the 787 manufacturing process.”

FAA added that it will retain this authority until it is confident that Boeing’s manufacturing processes and plans for re-work of already built 787s meet its standards.

“We respect the FAA’s role as our regulator and we will continue to work transparently through their detailed and rigorous processes,” a Boeing spokesman said. “Safety is the top priority for everyone in our industry. To that end, we will continue to engage with the FAA to ensure we meet their expectations and all applicable requirements.”

Boeing delivered only a handful of 787s last year, halting deliveries after the FAA raised concerns about what it said were production quality issues. The delays have caused some customers — like American —  to trim their long-haul schedules, and has cost Air Lease Corp. $500 million, the lessor’s Executive Chairman Steven Udvar-Hazy said.

At the end of last year, Boeing had 110 787s waiting for delivery. Neither the FAA nor Boeing offered a timeline for when deliveries might resume. However, some customers have said they expect 787s deliveries to begin again in the second quarter of this year.

Madhu Unnikrishnan

Airbus Predicts Return of Strong Asia-Pacific Demand Post-Pandemic

The Asia-Pacific region will get past its current doldrums and return to leading the world in air transport growth. The region will need 17,620 new aircraft by 2040, Airbus predicts in its latest forecast.

That’s hard to see now, however. The region is beset by some of the world’s most stringent travel restrictions, with industries like tourism recovering haltingly and unevenly throughout the region. Countries with large domestic markets, too, are seeing uneven recovery. Arlines in India are paring back spring schedules in response to the softening demand due to the Omicron variant’s spread, while China’s “zero-Covid” policy has essentially reversed much of the domestic-market strength seen in that country earlier in the pandemic, IATA data show.

But despite these short-term travails, Airbus believes the region’s inherent demographic strengths will fuel demand for air travel — and therefore, aircraft. The region is home to 55 percent of the world’s population. But more strikingly, its economic output is expected to grow by 3.6. percent per year, stronger than projected global GDP growth of 2.5 percent per year between now and 2040. The emerging middle class in the region is forecast to grow by 1.1 billion people to 3.2 billion, tripling what Airbus calls “travel propensity” in the period.

“We are seeing a global recovery in air traffic and as travel restrictions are further eased the Asia-Pacific region will become one of its main drivers again,” said Christian Scherer, Airbus chief commercial officer. “We are confident of a strong rebound in the region’s traffic and expect it to reach 2019 levels between 2023 and 2025.”

Air travel demand is expected to grow by 5.3 percent per year over the next 20 years. This is slightly rosier than Boeing’s recent forecast, which predicted passenger traffic to grow by 5 percent per year through 2040, although the two airframers forecast roughly the same number of new deliveries the region will require in the period. Boeing further believes that the region will account for half of all global air travel by 2040.

Of the 17,620 aircraft Airbus Airbus forecasts countries in the Asia-Pacific region will need, the majority — 13,360— will be single-aisle aircraft like the A320-family. Of these, 30 percent will be replacement aircraft for older, less-efficient models. The region will fuel 42 percent of demand for larger aircraft, Airbus said, translating into 2,470 medium-sized and 1,490 large aircraft.

Cargo traffic, meanwhile, is expected to grow by 3.6 percent per year, compared with 3.1 percent globally. Package freight will by almost 5 percent per year in the region, as consumers shift their retail habits. Airbus sees these trends driving demand for 2,440 freighters by 2040, 880 of which will be new-build aircraft.

Airbus forecasts the world will need 39,000 new aircraft, including freighters, by 2040. Of these, 15,200 will replace retiring aircraft, with the balance going toward air transport growth. Boeing, by contrast, believes the world will need 43,610 aircraft by 2040.

Madhu Unnikrishnan

Freighters Steal The Show in Singapore

The world’s airlines seem to have an almost insatiable demand for freighters. That’s not a surprise, given the startling growth of air cargo traffic since the pandemic began. Airlines are convinced now that what had seemed like a way to generate revenue while passenger demand was in the doldrums now is here to stay as a critical part of their business and no longer an afterthought or adjunct.

The Singapore Air Show last week. Airbus notched orders for its new A350F: Seven from Etihad (letters of intent) and seven from Singapore Airlines (although these were firming up letters of intent announced earlier).

Meanwhile, Boeing announced that Western Global Airlines has ordered two 777Fs, the carrier’s first new-build freighters. Western Global operates a fleet of 21 747-400Fs and MD-11 freighters.

And separately, lessor CDB Aviation said it will add 12 Airbus A330-200P2F conversions from EFW to its fleeting, bringing its total of the type to 14. The lessor will place the conversions with Sichuan Airlines and Jiangxi Cargo Airlines.

Madhu Unnikrishnan

Atlas Beefs up Widebody Fleet in Anticipation of Continued Cargo Strength

Atlas Air Worldwide is not concerned that belly-hold cargo may eat into its business once international passenger traffic recovers. First, most forecasts hold that the transatlantic market will recover before the transpacific market, which is more important to shippers. Second, when transpacific passenger markets recover, flights are likely to be point-to-point and not to cargo hubs, and especially not in large numbers to emerging cargo hubs like Vietnam, CEO John Dietrich said. Before the pandemic, the air freight market was roughly split between belly-hold and freighter traffic. Now, about 70 percent of freight is transported in freighters. Dietrich believes even after the world fully emerges from Covid, more freight will be carried by freighters.

Maritime snarls don’t hurt, either, he said. Air freight offers shippers clarity, so they may be more willing to pay higher cargo rates for the reliability of air freight, and seek cost savings elsewhere in manufacturing, even after the pandemic recedes, Dietrich said. And Dietrich is not convinced passenger traffic to China will return to pre-pandemic levels.

Atlas is putting its money where its mouth is, betting on the continued strength of freight with more widebody freighters. The carrier is taking delivery of one Boeing 777-200F this year, with three more to follow next year. It has placed all four of the 747-8Fs it ordered. And it is buying six 747-400Fs as they come off lease, and could buy five additional of the type as they come off lease. Atlas reactivated one stored 747-400F in December. Atlas could opt to buy more 747-400Fs as they come off lease if cargo demand warrants the expenditure, Dietrich said.

The cargo carrier reported a record fourth quarter, with $1.2 billion in revenues, generating $177 million in net income. For the full year, Atlas reported $4 billion in revenues, also a record, and a net income of $551 million. Atlas expects to generate $1 billion in revenue in the first quarter.

“We’re excited about the future, and, frankly, quite pleased with the results we reported,” Dietrich said.

Madhu Unnikrishnan

Fleet Briefs

  • Malaysia Airlines signed a deal with Air Lease Corp. for 25 Boeing 737-8s, which will join the fleet from next year through 2026. “After a detailed tender process in the last quarter, we are pleased to appoint ALC as the aircraft lessor for our Boeing 737-8 fleet,” Malaysia Aviation Group CEO Izham Ismail said. “This exercise is tied to the restructured terms of our existing orderbook with Boeing.”
  • American has ordered three more Embraer E175s for its Envoy subsidiary in a deal valued at $160 million at list prices. Deliveries are scheduled for this year. Envoy will operate 100 E175s following the arrival of the aircraft.
  • Canadian budget startup Lynx Air took delivery of its first aircraft, a Boeing 737-8, on February 14. The arrival followed a sale-and-leaseback with Aergo Capital for its first three aircraft, all Maxes. CarVal Investment funds provided equity funding for the deals, AV AirFinance arranged the debt. The deals are Aergo’s first for the 737 Max.

Edward Russell & Madhu Unnikrishnan

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Technology

Capital A, the company formerly known as AirAsia, is jumping on the electric air taxi bandwagon with an order for up to 100 of the aircraft for its ridesharing platform in Southeast Asia. The order affirms the global race to add air taxis to bridge the last mile between airports and city centers and cut airlines’ carbon footprints, but raises significant questions about whether regulators will approve the technologies in time to meet the industry’s ambitious goals.

The airline signed a memorandum of understanding with lessor Avolon for 100 Vertical Aerospace VX4 electric vertical takeoff and landing (eVTOL) aircraft. Last year, Avolon ordered 500 eVTOLs from Vertical in deal worth $2 billion. The lessor has now placed 90 percent of that order with airlines, with 250 to Brazil’s Gol and 100 to Japan Airlines.

AirAsia will allow passengers to book flights on the VX4s through its “Super App,” and as part of the company’s new ridesharing service AirAsia Ride in Malaysia. The move is part of the company’s rebranding as a digital-first travel and lifestyle company, rather than an airline that offers adjacent services. Among the examples of this strategy include allowing passengers to book tickets on other airlines, and letting merchants schedule e-commerce package deliveries all through its mobile app.

“We are now much more than just an airline with over 20 products and services on our super app leveraging off each other including flights, hotels, food, retail, delivery, ride hailing and more,” Capital A CEO Tony Fernandes said in announcing the deal with Avolon. “In the VX4, we have identified what we believe will be the eVTOL aircraft of choice and we are thrilled to be the launch airline for the aircraft in Southeast Asia.”

Fernandes did not offer a firm timeline for when the VX4s will join the fleet or be in service but said they are expected to be in service by 2025. Vertical Aerospace has said the VX4’s first flight is expected this year, with regulatory approval expected by the middle of the decade. This tracks with what its competitors, including Archer, Wisk, Embraer’s Eve subsidiary, and Airbus have said of their own eVTOLs. Yet no regulator in the world has approved an eVTOL for passenger flight, and electric propulsion remains largely uncertified for passenger operations. It is important to note that the certification process for conventional aircraft powered by gas-turbine engines can take several years.

Vertical’s VX4 is piloted, and is capable of carrying four passengers up to 100 miles at 200 miles per hour. The company counts American Airlines and Virgin Atlantic Airways among its customers. Vertical raised $300 million through a SPAC listing on the New York Stock Exchange in December.

Vertical CEO Stephen Fitzpatrick said he is “thrilled” by the AirAsia deal and to be “be bringing zero emissions flight to people all across Asia.”

Madhu Unnikrishnan

Alaska Rolls Out Flight Subscription Service

Alaska Airlines last week began selling pay-as-you-go flight passes in a move that hops on the popularity of the subscription model. Travelers who agree to pay a monthly fee will receive credits to fly a fixed number of roundtrips among 16 western U.S. airports.

“In our basic plan, we’re introducing affordable travel on par with an Uber ride or bar tab,” said Alexander Corey, managing director of business development and products.

A basic subscription starts at $49 a month and requires booking tickets at least two weeks before travel. A more flexible subscription starts at $199 a month and allows same-day booking. Subscribers can fly on routes within California and to Las Vegas, Phoenix, and Reno, covering about 100 daily flights.

“We designed the product by trying to create something our California guests have told us they needed,” Corey said. “In our data, 3.5 times more people travel within California than within any other state.”

Once consumers have selected a plan, they can choose their volume of flights, such as six, 12, or 24 a year. A basic plan with six flights typically costs $763 a year — after taxes and fees. A yearlong commitment works out to a total travel expense 20 to 30 percent below average fares across the system, Corey said.

For now, Alaska will only offer subscriptions through its direct channels. That’s a natural fit because subscriptions are ultimately about getting a closer relationship with customers. Subscriptions also reduce the money an airline needs to spend to acquire a customer per booking because they encourage repeat usage.

Some airlines have offered membership-based programs for some time, such as United Airlines long-time offering of subscriptions to access at its lounges and to other products. But Alaska’s program is one of the most sophisticated — or most Netflix-like — of the subscription efforts seen yet from an airline.

Caravelo, a Barcelona-based travel tech vendor, is helping Alaska on the back-end. It has plugged into the carrier’s passenger service system, run by Sabre, to make or amend bookings. Since 2018, Caravelo has run a subscription offering on behalf of Volaris. The Volaris VPass lets more than 30,000 consumers fly within Mexico once a month, paying only taxes when they book in return. Plans vary, but the monthly subscription for round-trip tickets is about $35 (699 Mexican pesos) a month.

During the pandemic, Volaris said its subscription revenue remained steady, which indicated people kept paying. However, subscription sales remain a small part of the airline’s overall revenue.

Five months ago, South African low-cost-carrier FlySafair launched a flight subscription program providing a select number of customers with up to 10 free flights per month. JetBlue Airways and other airlines have also occasionally run promotions where customers pre-pay for multiple vouchers at a volume discount or buy a pass with “all you can fly” privileges. But some people don’t call those true subscription products.

Other airlines looking to specifically add a subscription product may choose to use a subscription platform from a tech vendor that has practice handling recurring payments, billing, and fraud detection. “Airline subscriptions will usually have restrictions, unlikely Netflix, which doesn’t have a quota on how many movies you can see,” said Caravelo CEO Iñaki Úriz.

The nuances of the travel sector require a nuanced tech stack. “The subscription platform an airline uses needs to understand, let’s say, that you as a customer are subscribing to this X part of the airline’s network and not this Y part of the network,” Úriz said. “Maybe your subscription is going to include some ancillaries, such as free checked bags, but not others. Your program will probably also have some revenue management rules, such as that consumers must book all flights by a certain number of days out.”

For example, when redeeming, an Alaska subscriber will pay nominal taxes and fees, such as an airport security fee. Credits for flights are deposited monthly or bi-monthly, depending on the plan, and need to be redeemed within windows of time, typically between one and two months.

To keep things simple, Alaska is applying its standard practices for traditional tickets to the flights booked via subscription, such as how miles add up in the airline’s loyalty program and the use of elite upgrades. Subscribers also get access to main cabin seats rather than basic economy ones.

“We thought about things a little bigger picture, and less transactionally, than is the industry norm,” Corey said.

Sean O’Neill

Technology Briefs

  • Delta Air Lines added a new buy-now, pay-later feature from its credit card partner American Express to the booking process on its website and app last week. The offering allows travelers to select one of three plans to pay for tickets in installments over three to 24 months. Delta Senior Vice President of Customer Engagement and Loyalty Dwight James said the feature gives travelers more flexibility, and helps the carrier attract — and hopefully retain — more younger travelers, including millennial and Gen Z flyers. “The more we can make our program, our card benefits attractive to our customers, revenue is going to follow,” he said.

Edward Russell

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Landing Strip

  • The Supreme Court of Western Australia ruled last week that there are limits to what the Perth Airport can charge Qantas to use the facility. The court agreed with the airline that fees should be based on the cost of the services provided, but also agreed with the airport that a maximum profit margin is reasonable. The case has been pending for three-years after the airport took Qantas to court for alleged underpayment. Both the airline and airport claimed victory in the case in separate statements.
  • Memphis International Airport reached a major milestone in its $245 million modernization program: The opening of the updated Concourse B. The airport, which was a Northwest Airlines and then Delta Air Lines hub until 2013, has consolidated all flights in the 23-gate Concourse B and close Concourses A and C. The renovated facility can handle roughly six million passengers annually — Memphis saw 4.6 million passengers in 2019 — and capacity could increase to 11 million annually if the airport decides to update the west leg of Y-shaped Concourse B. Remaining work under the modernization program includes demolishing the end of Concourse C.

Edward Russell

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Routes and Networks

  • Despite CEO Michael O’Leary’s cautious attitude towards the peak summer season ahead, Ryanair is moving forward with plans to fly 15 percent more capacity than three years ago. The discounter is adding 18 new routes from Cork, Edinburgh and Leeds-Bradford to destinations in Europe and North Africa this summer. From Cork, Ryanair will add nonstops to Alghero, Pisa, and Venice, Italy; Birmingham, Edinburgh, and Manchester, UK; and Venice, Italy. It will connect Edinburgh to Bari and Palermo, Italy; Madrid and Santiago, Spain; Marrakesh, Morocco; and Nimes and Paris Beauvais, France. And from Leeds, Ryanair will offer new nonstops to Barcelona, Paris Beauvais, and Zadar, Croatia. Ryanair did not indicate when the new routes will begin, though the summer IATA schedule starts at the end of March.
  • Australian budget startup Bonza has unveiled its initial route map. The airline will serve 16 destinations with 25 routes that primarily originate from bases in Melbourne and Sunshine Coast, which is located a little over 60 miles north of Brisbane. Bonza’s first destinations are in New South Wales, Queensland, and Victoria and lie primarily along Australia’s eastern coast from Cairns in the north to Avalon, Victoria, in the south; Newcastle, New South Wales, is the closest to the country’s largest city, Sydney. The carrier plans to launch in mid-2022 with five Boeing 737 Max aircraft.
  • Delta Air Lines is proving it is not once scorned, twice shy when it comes to South Africa flying. The carrier has returned to U.S. regulators for three weekly frequencies to serve Cape Town from its Atlanta base from around November 22. This is the second attempt by Delta to fly to Cape Town after South African regulators last year shot down its plan for a circle route that would fly Atlanta-Johannesburg-Cape Town-Atlanta. It would fly an Airbus A350-900 on the route if approved.

    Separately, Delta has unveiled plans to begin flights between Atlanta and Kahului on November 19. The airline will also connect Detroit and Honolulu the same day, as well as New York JFK and Honolulu from December 17. While the Atlanta route is new for the carrier, Delta flew both the Detroit and New York routes on a limited basis in 2019 and 2020, Cirium schedules show.
  • While Delta is adding, American Airlines is trimming its long-haul flying this summer. The carrier will suspend three routes — Dallas-Fort Worth-Santiago, Los Angeles-Sydney, and Seattle-London — and postpone the launch of Dallas-Fort Worth-Tel Aviv due to the ongoing delivery delays facing new Boeing 787s. American had planned for four 787-8s to arrive by summer, which would have supported these routes, but has now pulled those aircraft from its schedule plan. It hopes to receive 10 787s in 2022 — down from 13 — with the balance arriving next year.
  • Last week was a big one for Connecticut airports. Startups Avelo Airlines and Breeze Airways both unveiled big expansion plans in the Nutmeg State. Avelo will expand at New Haven’s Tweed Airport with new nonstops to Charleston and Myrtle Beach, S.C., Nashville, and Savannah beginning May 5 and 6. The routes will operate up to six-times weekly with 737-700 aircraft.

    And just up I-91, Breeze named Hartford’s Bradley Airport as its fifth crew base. The airline will add eight routes from the airport that will be unveiled in early March that will bring its total nonstops from Hartford to 12. Breeze will staff roughly 200 people at Bradley.
  • Spirit Airlines executives weren’t kidding when they said it was business as usual as their proposed merger with Frontier Airlines awaits approval. A week after the announcement, Spirit unveiled plans to add the Kodak capital of the world, also known as Rochester, to its map as part of a six-route expansion this summer. The airline will connect Rochester to Orlando and Myrtle Beach from June 24. In addition, it will launch new service between Myrtle Beach and Manchester, N.H., from April 20; Louisville and St. Louis from May 26; and Milwaukee from May 27.
  • Porter Airlines is stretching its wings a bit in Atlantic Canada this summer. The carrier will connect its Toronto Billy Bishop base nonstop to Fredericton and Moncton year-round from May 5. The new routes will complement Porter’s existing service to the cities from Ottawa.
  • Staying in Canada, discounter Swoop isn’t done with its Boeing 737 Max-fueled expansion this summer. The airline is adding five new U.S. destinations, plus eight routes, in May and June. Burbank, Calif., Chicago O’Hare, Nashville, New York JFK, and San Francisco will all join Swoop’s map and bring its presence in the U.S. to 11 destinations. The new routes include Edmonton to Burbank, Chicago, Nashville, and San Francisco; Hamilton, Ontario, to Las Vegas; and Toronto Pearson to Las Vegas, Nashville, and New York.
  • And Canadian budget startup Lynx Air is adding Victoria, British Columbia, to its map a month after taking the skies on April 7. The airline will connect Victoria and Calgary twice-weekly from May 12 with an additional weekly frequency coming in June. Lynx will also connect Toronto and Winnipeg nonstop from May 5.

Edward Russell

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